What is the difference in tax savings between a $1,000 tax credit and a $1,000 tax deduction for a single taxpayer with $45,000 in taxable income?

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Quizplus · Accepted Answer

A tax credit directly reduces the amount of tax owed, while a tax deduction reduces the amount of taxable income. For a single taxpayer with $45,000 in taxable income, the marginal tax rate is 25%. Therefore, a $1,000 tax deduction would reduce taxes by $250, while a $1,000 tax credit would reduce taxes by $1,000. The difference in tax savings is $750.

What Is the Difference in Tax Savings Between a $1,000